DBRS Morningstar Downgrades Rating on One Class of Morgan Stanley Bank of America Merrill Lynch Trust 2013-C11

DBRS Limited (DBRS Morningstar) downgraded its rating on the following class of the Commercial Mortgage Pass-Through Certificates, Series 2013-C11 issued by Morgan Stanley Bank of America Merrill Lynch Trust:

-- Class A-S to A (high) (sf) from AAA (sf)

In addition, DBRS Morningstar confirmed the following ratings:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class X-A at AAA (sf)
-- Class B at B (low) (sf)
-- Class C at C (sf)
-- Class D at C (sf)
-- Class E at C (sf)
-- Class F at C (sf)
-- Class PST at C (sf)

DBRS Morningstar also maintained Negative trends on Classes A-S and B. All other trends are Stable, with the exception of Classes C, D, E, F, and PST, which have ratings that do not carry trends. DBRS Morningstar maintained the Interest in Arrears designation on Classes D, E, and F.

The ratings are reflective of DBRS Morningstar’s continued concerns with the four largest loans in the pool, two of which are in special servicing. The downgrade of Class A-S and the Negative trends are driven by DBRS Morningstar’s increased certainty regarding the likelihood of significant losses to the trust from the two loans in special servicing, Westfield Countryside (Prospectus ID#1, 16.6% of the current pool) and The Mall at Tuttle Crossing (Prospectus ID#2, representing 15.0% of the current pool). In addition, 10 loans representing 31.5% of the pool balance are on the servicer's watchlist, most of which have been flagged for performance-related issues.

The largest loan in the pool, Westfield Countryside, is secured by 464,398 square feet (sf) of a 1.3 million-sf regional mall in Clearwater, Florida. The mall is anchored by Macy’s, Dillard’s, and JCPenney, all of whom own their improvements and are not part of the collateral. A fourth noncollateral anchor space was previously occupied by Sears, which vacated in July 2018. The former Sears space was partially backfilled by Whole Foods, and the former auto centre was converted into a Nordstrom Rack. As of the February 2022 rent roll, the subject was 71.3% occupied, down from 83.0% as of September 2021. The servicer has reported a moderate amount of leasing activity at the property, which may result in an improvement in the occupancy rate. The three largest collateral tenants at the property account for 20.0% of net rentable area (NRA): CMX Cinemas (formerly Cobb Theatres, 11.6% of the NRA, lease expiry December 2026), Forever 21 (4.3% of the NRA, lease expiry January 2025), and Crunch (4.0% of the NRA, lease expiry July 2029). The loan reported a debt service coverage ratio (DSCR) of 1.14 times (x) for the trailing nine-month period ended September 2021, compared with a year-end 2020 DSCR of 1.09x. Both figures remain ultimately depressed from the DBRS Morningstar DSCR at issuance of 1.56x.

The loan transferred to special servicing in June 2020 for imminent default, following two months of closure because of Coronavirus Disease (COVID-19) restrictions. According to servicer commentary, the sponsor, Unibail-Rodamco-Westfield, is cooperating in a friendly foreclosure process, and a receiver was appointed in January 2021. The special servicer is currently determining the appropriate time to take the property for sale. The most recent appraisal reported by the servicer, dated November 2021, valued the property at $92.3 million, which remains in line with the August 2020 appraised value of $91.5 million, but represents a 66.0% decline from the appraised value of $270.0 million at issuance. DBRS Morningstar’s analysis included a liquidation scenario given the writedown in appraised value and likelihood of increasing carrying costs while the special servicer identifies a disposition strategy.

The second largest loan in the pool, The Mall at Tuttle Crossing, is secured by a 385,057-sf portion of a 1.1 million-sf super regional mall in Dublin, Ohio, a suburb of Columbus. The mall is owned and operated by Simon Property Group (Simon). The loan transferred to special servicing in June 2020 for imminent default, driven by issues related to the coronavirus pandemic. A receiver was appointed in January 2021. The most recent appraisal reported by the servicer, dated August 2021, valued the property at $80.0 million, in line with the August 2020 valuation of $80.0 million, however, ultimately down 67.0% from the appraised value of $240.0 million at issuance. As of the April 2022 reporting, the loan remains delinquent.

The property was built in 1997 and originally had three anchors: JCPenney, Sears, and Macy's. As of the March 2022 rent roll, collateral occupancy was 81.3%, an increase from the December 2021 rate of 76.0% and the September 2020 rate of 61.3%. The noncollateral Macy’s downsized in 2017, closing one of its two anchor spaces, and the noncollateral Sears vacated the property in 2018. Dayton-based fun centre Scene75 purchased the former Macy’s store and opened in mid-2019. The three largest collateral tenants at the property include the following: AVRS Furniture (6.7% of the NRA, lease expiry through October 2022), Finish Line (5.4% of the NRA, lease expiry February 2025), and Shoe Depot (3.5% of the NRA, lease expiry June 2023). The year-end 2021 DSCR was reported to be 0.70x, a significant decline from the year-end 2020 DSCR of 1.44x and the issuance DSCR of 2.34x. Given the declined performance, writedown in appraised value, and upcoming lease roll, DBRS Morningstar’s analysis included a liquidation scenario for this loan.

The largest loan on the servicer’s watchlist, Southdale Center (Prospectus ID#4, 8.5% of the current pool) is secured by a 634,880-sf portion of a regional mall in Edina, Minnesota. The loan has been on the servicer’s watchlist since August 2018 for a sustained depressed occupancy rate, which was reported at 50.5% as of September 2021, in line with the December 2020 rate of 53.0%, and a significant decline from 87.4% at issuance. The mall is currently anchored by a noncollateral Macy's and a noncollateral Life Time Fitness and Life Time Work office, in addition to a collateral 16-screen AMC Theatres. A fourth collateral anchor space remains vacant. Although occupancy is distressed, the DSCR remains above water and was reported at 1.27x for the trailing nine months ended September 2021, compared with the YE2020 DSCR of 1.41x. Per the September 2021 rent roll, in-line sales were reported to be $366.78 per square foot for the trailing 12-month period.

As of the April 2022 remittance, 30 of the original 38 loans remain in the pool. The initial pool balance of $856.3 million has been reduced by 34.7% to $558.8 million, which includes $45.5 million of realized trust losses stemming from the liquidation of Matrix Corporate Center (Prospectus ID#3). Five loans representing 12.1% of the current pool balance are fully defeased.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Classes X-A is an interest-only (IO) certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

The DBRS Viewpoint platform provides additional information on this transaction and underlying loans including DBRS Morningstar metrics, commentary, servicer-reported cash flows, and other performance-related data.

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Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (March 4, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The DBRS Morningstar long-term rating scale definition indicates that ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are monitored.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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